O'Malley fights the good fight on Maryland pensions
Maryland is not a hot-bed of education reform (though the newly-formed MarylandCAN no doubt hopes to change that) and Martin O'Malley is not usually seen as vying for the crown of public-sector reformer as Chris Christie, Andrew Cuomo, et al. are. Nevertheless, O'Malley is stepping out in favor of a much-needed—and relatively unpopular—reform to Maryland's teacher pension system.
Under current law, the state shoulders most of the burden for teacher pensions, not districts. It's a sweet deal for the state's wealthier school districts, which can max out teacher salaries without bearing much in the way of pension costs. The state, in turn, must divert resources from other uses to pay the bill for retirement benefits.
The state will only pick up half the tab, leaving local school boards with significant skin in the game.
O'Malley's plan is modest. The state will only pick up half the tab, leaving local school boards with significant skin in the game. In return, the state will pay half of the employer contribution to Social Security, an expense that is capped by statute and, unlike pension costs, is not subject to investment losses. Nevertheless, many county officials, especially in wealthy counties, predict fiscal Armageddon will result.
The governor and his allies in the legislature on this issue need to make the case for getting this bad arrangement off the books in Maryland. (A similar law is in effect in Connecticut—Nutmeg State chief exec Dannel P. Malloy could borrow a page from O'Malley's playbook.) Given Maryland's $11 billion pension shortfall and enormous underfunded liabilities for retiree healthcare, it wouldn't hurt to go even further, considering reforms along the lines of Rhode Island and Utah's move toward hybrid retirement systems. But every little bit helps to close the state's structural budget deficit of $1.1 billion and make the allocation of education aid to local governments smarter.
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About the Editor
Bernard Lee Schwartz Policy Fellow
Chris Tessone was a Bernard Lee Schwartz Policy Fellow and the Director of Finance of the Thomas B. Fordham Institute. He has strong interests in governance and education finance, especially teacher compensation and school facilities finance.
May 16, 2013